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When it comes to Global Week Ahead events, there will be the Kansas City Fed’s Annual Summer Jackson Hole central banker discussions.
And then, everything else.
In fact, it’s a good reminder. A paucity of other developments in late August is why the Fed puts this show on this time of year.
This year’s virtual Jackson Hole event starts on Thursday and continues into Friday.
The symposium theme is: “Navigating the Decade Ahead: Implications for Monetary Policy.”
That long-run 10-year emphasis will guide a variety of discussions.
The most watched session will be Fed Chair Powell’s address titled “Monetary Policy Framework Review” on Thursday at 9:10 am ET.
Next are Reuter’s five world market themes, reordered for equity traders—
(1) Where Does the U.S. Dollar Weakening Go from Here?
The dollar, slipping to more than two-year lows in recent days, looks out of favor thanks to negative inflation-adjusted yields, weaker macro-economic data and tensions between Washington and Beijing. The downward move has fueled familiar talk about the dollar’s decline as the world’s reserve currency.
Investors are trying to gauge where next for the greenback. Intraday volatility has increased across the currency complex suggesting bearish positioning versus the dollar may be at extremes.
And unlike July, when virtually all non-dollar currencies and precious metals gained on the dollar’s 4% fall, August has been a mixed bag. The yen and the Aussie have struggled. Even gold’s eye-watering rally is showing signs of exhaustion after hitting a record near $2,100 per ounce earlier this month.
Throw in a U.S. Federal Reserve wary of pumping in more stimulus just yet, approaching U.S. elections and the greenback may find some fresh legs.
(2) Is it Time to Rotate to Value Stocks?
Betting on a recovery of so-called value (read cheap) stocks has become a popular mainstream call among sell-side analysts as investors scramble to assess which bits of the market the rally could lift next.
Value stocks generally lag in the first stages of a bounce-back but usually follow risk-on stocks upwards as the economic recovery unfolds. Now with hopes that a COVID-19 vaccine could be widely available in early 2021, overlooked undervalued stocks are becoming tempting targets for stock pickers.
A rotation to value, targeting banks, autos and energy value stocks has already made tentative runs, but the decade long underperformance of that segment of the market means many won’t touch them with a barge pole.
Looking at the outstanding performance of value stocks and big tech since the great financial crisis in general - and the COVID-19 market in particular - investors are wary of the value-trap.
(3) Keep an Eye on the Turmoil in Belarus.
Belarus’s political crisis rumble on, dragging the European Union and the United States into another proxy standoff with Russia, the country’s main economic ally.
Street protests over alleged vote rigging in President Alexander Lukashenko’s ‘landslide’ election win are set to continue in Minsk. With Lukashenko refusing to re-run the vote and starting a criminal case against the opposition, it’s not obvious how the tensions get resolved.
For Moscow, Belarus is an important strategic buffer against NATO and the EU and Russia sells the country oil at below-market prices. But the relationship is testy and even Russia’s currency and bonds might now be affected by the situation, especially if sanctions come into play.
Meanwhile the hospitalization of Russian opposition politician Alexei Navalny, the biggest thorn in the Kremlin’s side, will do little to shift unwanted attention away from Moscow, with Navalny’s allies alleging poisoning.
(4) Virtual Jackson Hole: Fed Chair Powell Speaks on Thursday
A lot has been riding on the Fed in recent months: risk assets have surged on the back of its do-whatever-it-takes approach to propping up the economy with asset purchases and zero-bound rates during the pandemic crisis.
Now a key challenge is how to spur inflation. Fed Chair Jerome Powell may give hints on Thursday on the opening day of the Jackson Hole conference, where he will discuss the central bank’s monetary policy framework review.
The review looks at how to revamp Fed tools to guide the economy. As part of that, investors have been anticipating details on possible changes to how it targets inflation.
To guard against the possibility of higher prices ahead, investors have loaded up on assets like gold and TIPs. Still, while five-year five-year forwards - an inflation gauge - have been rising, the measure remains below the Fed’s 2% target.
(5) Five Big Chinese State Banks Report Earnings on Friday, August 28th.
Chinese banks are expected to show the scars of the pandemic and the domestic economic slowdown for the first time when they report half-yearly earnings, having bucked the Western banking sector’s downward trend in the first quarter.
The big five state banks, including Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of China (BoC), kick off earnings season on Aug. 28.
The government has pressed banks into service: financial institutions have been told to sacrifice 1.5 trillion yuan ($217 billion) in profit this year to support companies by lowering lending rates and fees, and deferring loan payments.
Beijing wants new loans and overall financing to top last year’s while the banking regulator has asked lenders to raise loan-loss provisions and come up with realistic profit plans. That means profits won’t be growing, as the filings will show.
Top Zacks #1 Rank (STRONG BUY) Stocks—
Let’s go thru three major American brands.
(1) Deere Company (DE - Free Report) : This is a $200 a share farm equipment stock, giving it a market cap of $59.8B.
I see a Zacks Value score of C, a Zacks Growth score of C, and a Zacks Momentum score of C.
Deere is currently the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme.
(2) O’Reilly Automotive (ORLY - Free Report) : This is an incredible $460 a share auto parts stock, giving it a market cap of $34.2B.
I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of A.
O'Reilly Automotive, Inc. is a leading specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers.
(3) Whirlpool Corp. (WHR - Free Report) : This is a household appliance company, with multiple brands. I note a $180 share price and a market cap of $11.4B.
I see a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of D.
Benton Harbor, MI-based Whirlpool Corporation, founded in 1955, is one of the largest manufacturers of home appliances in the world. The company manufactures products in 14 countries and markets products in nearly every country around the world.
Key Global Macro—
Powell’s Thursday morning 9:10 am ET speech is the headline event.
On Monday, Taiwan’s industrial production should grow +3.5% y/y in July and its unemployment rate should be 4.0%. Wow! That is what good virus management can do.
On Tuesday, the Case-Shiller Home Price Index gets updated. A +3.6% y/y growth rate is what is expected.
U.S. New Home Sales at 783K are data to watch for a beat.
German real GDP growth for Q2 should be -10.1% q/q.
The German IFO Business Climate index should be at 92.4, Current Assessment should be at 86.9, and Expectations should be at 98.0.
On Wednesday, Hong Kong exports should be down -3.9% y/y and imports down -6.3% y/y. That’s not as bad as one could expect, given the political situation.
On Thursday, Fed Chair Powell speaks at 9:10 am ET.
The U.S. will take a second swing at estimating Q2 GDP. Expect only minor potential revisions (-32.5%) to the original estimate of -32.9% q/q at an annualized rate.
U.S. weekly unemployment claims data will get lots of media coverage, given the fiscal stimulus hold-up in Congress. 1.0M is what is expected.
The Bank of South Korea delivers a policy decision. That’s it for the world’s central banks this week. 0.50% on the policy rate is not expected to change.
On Friday, Canada releases its real GDP growth rate data. That North American country is expected to register a monthly gain of about +5.5% m/m in June and a quarterly contraction toward the -40% annualized mark in Q2.
The Fed’s preferred inflation gauge, the PCE, comes out. +1.3% y/y for ex-food and energy is the consensus.
University of Michigan consumer confidence data comes out. Look for 72.8.
Conclusion
There are statistical quantitative measures of a stock’s valuation.
Then, there are individual share price tags.
This week, our three Zacks #1 Ranked individual stock prices show traders a key narrative.
This is a richly priced large cap stock market.
• Deere is trading at $200 a share, • O’Reilly Automotive is trading at $460 a share, and • Whirlpool Corp. is trading at $180 a share.
Be cautious.
Putting any fresh money to work at these valuations.
Happy trading to all!
Regards,
John Blank
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A Virtual Jackson Hole: Global Week Ahead
When it comes to Global Week Ahead events, there will be the Kansas City Fed’s Annual Summer Jackson Hole central banker discussions.
And then, everything else.
In fact, it’s a good reminder. A paucity of other developments in late August is why the Fed puts this show on this time of year.
This year’s virtual Jackson Hole event starts on Thursday and continues into Friday.
The symposium theme is: “Navigating the Decade Ahead: Implications for Monetary Policy.”
That long-run 10-year emphasis will guide a variety of discussions.
The most watched session will be Fed Chair Powell’s address titled “Monetary Policy Framework Review” on Thursday at 9:10 am ET.
Next are Reuter’s five world market themes, reordered for equity traders—
(1) Where Does the U.S. Dollar Weakening Go from Here?
The dollar, slipping to more than two-year lows in recent days, looks out of favor thanks to negative inflation-adjusted yields, weaker macro-economic data and tensions between Washington and Beijing. The downward move has fueled familiar talk about the dollar’s decline as the world’s reserve currency.
Investors are trying to gauge where next for the greenback. Intraday volatility has increased across the currency complex suggesting bearish positioning versus the dollar may be at extremes.
And unlike July, when virtually all non-dollar currencies and precious metals gained on the dollar’s 4% fall, August has been a mixed bag. The yen and the Aussie have struggled. Even gold’s eye-watering rally is showing signs of exhaustion after hitting a record near $2,100 per ounce earlier this month.
Throw in a U.S. Federal Reserve wary of pumping in more stimulus just yet, approaching U.S. elections and the greenback may find some fresh legs.
(2) Is it Time to Rotate to Value Stocks?
Betting on a recovery of so-called value (read cheap) stocks has become a popular mainstream call among sell-side analysts as investors scramble to assess which bits of the market the rally could lift next.
Value stocks generally lag in the first stages of a bounce-back but usually follow risk-on stocks upwards as the economic recovery unfolds. Now with hopes that a COVID-19 vaccine could be widely available in early 2021, overlooked undervalued stocks are becoming tempting targets for stock pickers.
A rotation to value, targeting banks, autos and energy value stocks has already made tentative runs, but the decade long underperformance of that segment of the market means many won’t touch them with a barge pole.
Looking at the outstanding performance of value stocks and big tech since the great financial crisis in general - and the COVID-19 market in particular - investors are wary of the value-trap.
(3) Keep an Eye on the Turmoil in Belarus.
Belarus’s political crisis rumble on, dragging the European Union and the United States into another proxy standoff with Russia, the country’s main economic ally.
Street protests over alleged vote rigging in President Alexander Lukashenko’s ‘landslide’ election win are set to continue in Minsk. With Lukashenko refusing to re-run the vote and starting a criminal case against the opposition, it’s not obvious how the tensions get resolved.
For Moscow, Belarus is an important strategic buffer against NATO and the EU and Russia sells the country oil at below-market prices. But the relationship is testy and even Russia’s currency and bonds might now be affected by the situation, especially if sanctions come into play.
Meanwhile the hospitalization of Russian opposition politician Alexei Navalny, the biggest thorn in the Kremlin’s side, will do little to shift unwanted attention away from Moscow, with Navalny’s allies alleging poisoning.
(4) Virtual Jackson Hole: Fed Chair Powell Speaks on Thursday
A lot has been riding on the Fed in recent months: risk assets have surged on the back of its do-whatever-it-takes approach to propping up the economy with asset purchases and zero-bound rates during the pandemic crisis.
Now a key challenge is how to spur inflation. Fed Chair Jerome Powell may give hints on Thursday on the opening day of the Jackson Hole conference, where he will discuss the central bank’s monetary policy framework review.
The review looks at how to revamp Fed tools to guide the economy. As part of that, investors have been anticipating details on possible changes to how it targets inflation.
To guard against the possibility of higher prices ahead, investors have loaded up on assets like gold and TIPs. Still, while five-year five-year forwards - an inflation gauge - have been rising, the measure remains below the Fed’s 2% target.
(5) Five Big Chinese State Banks Report Earnings on Friday, August 28th.
Chinese banks are expected to show the scars of the pandemic and the domestic economic slowdown for the first time when they report half-yearly earnings, having bucked the Western banking sector’s downward trend in the first quarter.
The big five state banks, including Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of China (BoC), kick off earnings season on Aug. 28.
The government has pressed banks into service: financial institutions have been told to sacrifice 1.5 trillion yuan ($217 billion) in profit this year to support companies by lowering lending rates and fees, and deferring loan payments.
Beijing wants new loans and overall financing to top last year’s while the banking regulator has asked lenders to raise loan-loss provisions and come up with realistic profit plans. That means profits won’t be growing, as the filings will show.
Top Zacks #1 Rank (STRONG BUY) Stocks—
Let’s go thru three major American brands.
(1) Deere Company (DE - Free Report) : This is a $200 a share farm equipment stock, giving it a market cap of $59.8B.
I see a Zacks Value score of C, a Zacks Growth score of C, and a Zacks Momentum score of C.
Deere is currently the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme.
(2) O’Reilly Automotive (ORLY - Free Report) : This is an incredible $460 a share auto parts stock, giving it a market cap of $34.2B.
I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of A.
O'Reilly Automotive, Inc. is a leading specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers.
(3) Whirlpool Corp. (WHR - Free Report) : This is a household appliance company, with multiple brands. I note a $180 share price and a market cap of $11.4B.
I see a Zacks Value score of B, a Zacks Growth score of D, and a Zacks Momentum score of D.
Benton Harbor, MI-based Whirlpool Corporation, founded in 1955, is one of the largest manufacturers of home appliances in the world. The company manufactures products in 14 countries and markets products in nearly every country around the world.
Key Global Macro—
Powell’s Thursday morning 9:10 am ET speech is the headline event.
On Monday, Taiwan’s industrial production should grow +3.5% y/y in July and its unemployment rate should be 4.0%. Wow! That is what good virus management can do.
On Tuesday, the Case-Shiller Home Price Index gets updated. A +3.6% y/y growth rate is what is expected.
U.S. New Home Sales at 783K are data to watch for a beat.
German real GDP growth for Q2 should be -10.1% q/q.
The German IFO Business Climate index should be at 92.4, Current Assessment should be at 86.9, and Expectations should be at 98.0.
On Wednesday, Hong Kong exports should be down -3.9% y/y and imports down -6.3% y/y. That’s not as bad as one could expect, given the political situation.
On Thursday, Fed Chair Powell speaks at 9:10 am ET.
The U.S. will take a second swing at estimating Q2 GDP. Expect only minor potential revisions (-32.5%) to the original estimate of -32.9% q/q at an annualized rate.
U.S. weekly unemployment claims data will get lots of media coverage, given the fiscal stimulus hold-up in Congress. 1.0M is what is expected.
The Bank of South Korea delivers a policy decision. That’s it for the world’s central banks this week. 0.50% on the policy rate is not expected to change.
On Friday, Canada releases its real GDP growth rate data. That North American country is expected to register a monthly gain of about +5.5% m/m in June and a quarterly contraction toward the -40% annualized mark in Q2.
The Fed’s preferred inflation gauge, the PCE, comes out. +1.3% y/y for ex-food and energy is the consensus.
University of Michigan consumer confidence data comes out. Look for 72.8.
Conclusion
There are statistical quantitative measures of a stock’s valuation.
Then, there are individual share price tags.
This week, our three Zacks #1 Ranked individual stock prices show traders a key narrative.
This is a richly priced large cap stock market.
• Deere is trading at $200 a share,
• O’Reilly Automotive is trading at $460 a share, and
• Whirlpool Corp. is trading at $180 a share.
Be cautious.
Putting any fresh money to work at these valuations.
Happy trading to all!
Regards,
John Blank